In Europe, the peak of inflation will not be reached before the beginning of next year, according to BlueBay, Analyzes et opinions


The summer rally is running out of steam on the stock market as the story of the peak of inflation cracks, at the origin of the rebound that began at the end of June and which took equity indices to four-month highs, under technical resistance levels (the 200-day moving average remains on the downside). In the United States, central bankers have been taking turns for several days to proclaim to investors who are willing to listen that the fight against inflation is far from over, that rate hikes will continue and that a of the cost of money will not happen soon, contrary to what they hope.

Jerome Powell, the boss of the Fed, is officially, since yesterday, on the program of those who will speak next Friday, August 26, at the Jackson Hole symposium, organized by the Kansas City Fed, and which brings together each year the world’s great fundraisers as well as eminent economists. Its mission will be to make the message audible that the US central bank has no bearish pivot in mind. Since the end of July, and the press conference which followed the last monetary policy meeting of the Fed, Jerome Powell has not spoken. Next Friday, he will do it, like a tightrope walker, trying to find the right tone, both firm to give credibility to the mandate of the institution that guarantees price stability (on the debt markets, because that investors are convinced that the Fed will cut rates next year, interest rates have eased, thus undermining the work of the central bank), but not too much to avoid a panic on the stock market.

New electricity price record

In Europe, inflationary pressures show no signs of letting up. While the consumer price index in the UK rose by more than 10% in July, much more than expected by economists, producer prices in Germany are also breaking multi-decade records, due to soaring energy costs… which continue to rise. On the German electricity market, which is the reference for Europe, the wholesale price of a megawatt hour that can be delivered in one year still reached a new record today, at more than 550 euros, an increase of 17% over a week (+350% since the start of the year, almost x7 over a year). Yesterday, Isabel Schnabel, Member of the Executive Board of the European Central Bank, made it clear that the inflation outlook in the Eurozone had not improved since July’s rate hike.

“Wholesale gas prices in the region are now ten times higher than last year, which remains a major cause for concern, amid supply disruptionssays Mark Dowding, chief investment officer at BlueBay Asset Management. Although governments seek to shield consumers and businesses from the full impact of this energy shock through subsidies and subsidies, the effects second-round inflationists begin to manifest themselves more widely in the prices of goods and services. At the same time, the recent drought in Europe is helping to exacerbate food inflation and fertilizer shortages underscore the risk of a new food supply shortfall in the period ahead. It looks like central banks will have to keep raising rates even as economic growth continues to deteriorate. »

According to BlueBay AM, one of the largest portfolio managers in Europe, the peak of inflation in the euro zone will not be reached before the beginning of 2023. The same for the United Kingdom, where “The consumer price index is expected to remain in double digits for the coming months, with a possible peak around 15% in the first quarter of next year. » In general, food and energy exporting countries continue to « be well »while those who import it are “very vulnerable. » Mark Dowding “privileges the prospects of US companies over those of the euro zone. »

Inflationary fiscal policies

In the United States, the world’s largest consumer of oil but also the largest producer, “The moderation in oil prices, a strong dollar and the cooling of the real estate market are all factors that can contribute to moderating prices in the months to come. Also, unlike fiscal policy in Europe, which can contribute to inflation, it is striking that the U.S. fiscal deficit has narrowed over the past year as spending programs wind down and that tax revenues increase, thanks to a robust economy. After experiencing double-digit deficits (as a percentage of GDP) in 2020 and 2021, the US budget deficit is close to 3% for the current quarter. Thus, fiscal and monetary policies have come together in the United States over the past two years, stimulating the economy during the pandemic and more recently working together to moderate excess demand. »

Today, for Mark Dowding, England is in an even worse state than Manchester United, one of its most emblematic football clubs. Last week, the chief investment officer of BlueBay Asset Management, who is very critical of the British government, wrote that “Rwanda seems more attractive than the UK”, while also wanting to draw attention to the under-investment in emerging countries. Not all developing countries have the same fundamentals, it is essential to be selective. Recommends to him to bet on investments in South Africa and Brazil, certainly not in Turkey where again, this week, the authorities thought that he « made sense » cut interest rates to kill hyperinflation, against economic savvy.

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Brazil’s Bovespa index is, globally, one of the few to progress since the start of the year (+8.5% in local currency, +17% in dollars), well helped by Petrobras, the champion local oil market (+26% in dollars). Everywhere, soaring crude prices have benefited extractive companies. In Europe, the index of companies belonging to the “oil and gas” sector has gained more than 20% since the start of the year; it is also the only compartment to be on the rise. On the Paris Stock Exchange, TotalEnergies (+18%) is, with the arms seller Thales, the only Cac 40 once the performance is converted into dollars (+5%). The American Chevron (+53%) climbs on Wall Street, on the first step of the Dow Jones podium, while Occidental Petroleum, the big player in the shale of the Permian basin, crushes the competition (+123%) on the S&P500.


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